“…the agency has touted its enforcement statistics as a gauge of its effectiveness for the past decade. But police chiefs often rate success in terms of falling crime rates…The SEC’s increasing numbers of cases and “ever-growing penalty amounts” could show a need to re-evaluate…”, Bradley Bondi, former SEC Commission Counsel, partner Cadwalader, Wickersham, & Taft, LLP


As SEC Enforcement Cases Rise, Big Actions Are Sparse

Tally Is First Year-Over-Year Increase Since 2011, But Some Cite Paucity of Big Cases

By Jean Eaglesham

The SEC, under Mary Jo White, said it wants to pursue wrongdoing on a broad range of fronts, on both Wall Street and Main Street. Bloomberg News

Mary Jo White will end her first full fiscal year running the Securities and Exchange Commission able to claim an increase in its annual tally of cases, the first year-over-year rise since 2011, according to people close to the agency.

It is an important benchmark for the SEC chairman, a former federal prosecutor who promised “aggressive and creative” enforcement soon after taking office last year.

But some SEC watchers said the heightened activity masks a scarcity of the blockbuster actions that should be a feature of an effective Wall Street cop.

“When the chairman testifies before Congress…she will have nice numbers to cite,” said Thomas Gorman, a partner at law firm Dorsey & Whitney LLP. “But she’s not going to have the really good cases that the SEC made its reputation on.”

Ms. White said the SEC’s enforcement division has been highly successful in the past year, and aggressive enforcement will continue. “What is most impressive is that the cases span the spectrum of the securities markets and that we demanded tough remedies,” she said in a statement.

The SEC is still completing its official tally of enforcement actions for the fiscal year ending Tuesday. But a recent flurry of activity has boosted total enforcement actions, one of the agency’s measures of success, to well over the 686 reached in the previous 12-month period, the people close to the agency said.

Ms. White can also point to recent progress on two of her priorities. Her policy of requiring admissions of wrongdoing to settle SEC allegations in some cases has produced 12 such pacts, the most recent last week, according to an analysis by The Wall Street Journal. And her “broken windows” strategy of pursuing even small legal violations led to 54 new cases this month, a handy addition to the annual tally, according to the analysis.

Senior SEC officials said the agency under Ms. White is moving on from its effort to punish misconduct related to the financial crisis, which dominated the five years after 2008. But such actions still accounted for more than half of its biggest-penalties cases in this fiscal year, according to the analysis by the Journal.

Four of seven cases with settlements of more than $100 million brought by the SEC in the past 12 months, including the three biggest fines, involve conduct dating back to the financial crisis, the analysis found.

Three of these seven $100 million-plus cases included admissions of wrongdoing by the firm involved, reflecting the agency’s determination to require admissions in some of its most important cases. But the 12 pacts with admissions reached under the new policy also include alleged misconduct that resulted in much smaller penalties, in which fraud wasn’t alleged, such as a computer-coding error that resulted in a discount brokerage giving incorrect data to the SEC.

“When you look at the [admissions] cases they’ve brought so far, it’s hard to understand why those have been selected and not others,” said Stephen Crimmins, a partner at law firm K&L Gates LLP.

Andrew Ceresney, SEC enforcement chief, said all 12 admissions “are important cases that warranted admissions, which enhanced the defendants’ acceptance of responsibility for their actions.”

The SEC has chalked up some notable firsts under Ms. White. This month alone, the agency made a record $30 million payout to a whistleblower and filed its first enforcement action against a high-frequency trading firm, as well as its first case against a brokerage firm for failing to protect customers’ nonpublic information.

Senior SEC officials said the agency’s postcrisis strategy is to pursue wrongdoing on a broad range of fronts, on both Wall Street and Main Street, rather than target any particular area.

“Now that we have completed nearly all of our financial crisis cases, we will increase our focus in a range of different areas,” said Mr. Ceresney. The types of cases being targeted include insider trading, market structure, microcap-stock fraud, pyramid schemes, municipal securities, complex financial instruments, and investment-adviser fraud, he said. Mr. Ceresney highlighted financial-reporting fraud as another area in which the SEC is ramping up efforts.

The numbers of these bread-and-butter, fiddling-the-books cases fell sharply in the aftermath of the crisis. That trend is now reversing: The SEC will this fiscal year be able to report an increase for this type of case for the first time since 2008, said a person close to the agency. Accounting and financial-reporting fraud numbers are up at least 25% on the 68 total for the year through September 2013, the person said.

But these cases are mostly on a fairly modest scale, in terms of the sanctions imposed. “We’re not seeing many really big actions; there is nothing to match the accounting fraud cases of the late 1990s,” said Thomas Sporkin, a former SEC attorney who is now a partner at law firm BuckleySandler LLP.

Some lawyers question the seeming pressure on the SEC to bring ever-bigger cases. Bradley Bondi, a former counsel to two former SEC Republican commissioners, said the agency has touted its enforcement statistics as a gauge of its effectiveness for the past decade. But police chiefs often rate success in terms of falling crime rates, said Mr. Bondi, now a partner at law firm Cadwalader, Wickersham & Taft LLP. The SEC’s increasing numbers of cases and “ever-growing penalty amounts” could show a need to re-evaluate how well it is deterring future misconduct, he said.

Arthur Levitt, the SEC’s chairman from 1993 to 2001, said Ms. White has “got off to a good start” on enforcement. But it is probably too early to judge the effectiveness of her drive to make the SEC a tougher agency. “I don’t think we’ll really know for a few years,” he said.


Posted on September 30, 2014, in Postings. Bookmark the permalink. Leave a comment.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

%d bloggers like this: